Baglin v. Southern Surety Co.

Mr. Justice Robb

delivered the opinion of the Court:

At the outset it may not be amiss to direct attention to the fact that it was perfectly competent for these parties to enter into such a contract as should be mutually acceptable. The surety company was under no duty to enter into an agreement for the return of money. It might, if it so desired, limit its obligation to the return of securities actually, and not fictitiously, loaned to Linderman. Many reasons might be suggested why the company should have been unwilling to enter into the kind of a contract that Baglin and Linderman first desired. But that is quite unnecessary, because, in the circumstances of this case, the limitation in the contract as written is necessarily material. It has been made so by the parties. If an insurance company may require, as a condition to the validity of a policy issued by it, the giving of notice of any prior or subsequent insurance. (Northern Assur. Co. v. Grand View Bldg. Asso. 183 U. S. 308, 46 L. ed. 213, 22 Sup. Ct. Rep. 133), so may a surety company insist upon the performance in good faith of the very condition upon which it was induced to enter into its contractual obligation. Baglin and Linderman knew that the surety company would not knowingly enter into an obligation for the return of money, but would guarantee the return of loaned securities. They knew, therefore, that if an obligation was to be obtained from the surety company it would have to be based upon a bona fide loan of securities in the ordinary and usual acceptation of that term. The contract actually entered into gave effect to the understanding of the parties, for it sets forth the loaning to Linderman,by Baglin of “old 4’s” of the value of $45,000, and that these “aforementioned securities” are to be returned on or before a date certain.

Knowing that the contract of suretyship had been entered into by the surety company upon the express condition that there should be a loam, merely of said bonds to Linderman, Baglin, before he delivered them to Linderman, entered into the supplemental agreements whereby the character of the transaction was entirely changed. It was no longer a loan of securities, — it was in substance and effect a loan of money. By these supplemental agreements Linderman became a mere debtor of Baglin. In other words, their relations under the supplemental agreements were such that, had the facts been seasonably known to the surety company, its undertaking would not have been executed. Appellant knew all this, and now boldly asserts that this “roundabout proceeding” was resorted to in order to obtain a contract from the surety company that it would not otherwise have written. Such a transaction ought not to be countenanced in a court of’ justice. The surety company ought not to be held to the fulfilment of a contract into which it expressly declined to enter. The fact that it was compensated for writing the suretyship obligation does not prevent us from “determining the fair scope and meaning of the contract in the light of the language used and the circumstances surrounding the parties.” (Italics ours.) United, States use of Hill v. American Surety Co. 200 U. S. 197, 50 L. ed. 437, 26 Sup. Ct. Rep. 168. We rule, therefore, that the supplemental agreements of July 17th so modified and changed the original contract between the parties, the contract upon which the surety-ship undertaking was based, as to release the surety company. Miller v. Stewart, 9 Wheat. 680, 6 L. ed. 189; United States Fidelity & G. Co. v. Goldin Pressed & Fire Brick Co. 191 U. S. 416, 423, 48 L. ed. 242, 245, 24 Sup. Ct. Rep. 142; Catholic University v. Morse, 32 App. D. C. 195.

This ruling renders it unnecessary to consider the other questions suggested.

Judgment affirmed, with costs. Affirmed. '